A tractable cost pass-through benchmark

Bertram Neurohr ()

Economics Bulletin, 2016, vol. 36, issue 3, 1603-1608

Abstract: Under the assumptions of constant marginal costs, linear demand and symmetric cross-price effects, the equilibrium rates at which firms pass cost changes through to prices can be calculated from diversion ratios. The resulting pass-through benchmark makes it possible to capture market asymmetries and can easily be extended to cover not just the conventional cases of firm-specific and industrywide cost changes but also cases where some but not all firms face a cost change and where the degree of exposure to the cost change varies between firms. As such the benchmark is more accurate and adaptable than existing benchmarks and also has a number of practical advantages vis-Ã -vis more complex approaches.

Keywords: pass-through; asymmetry; diversion ratios; differentiated products; umbrella effects; asymmetric cost changes (search for similar items in EconPapers)
JEL-codes: L4 L5 (search for similar items in EconPapers)
Date: 2016-08-24
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Citations: View citations in EconPapers (1)

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